Is political influence affecting the SEC’s deliberation on spot Ether ETFs, and what does this mean for the crypto community?
Overview
What is currently unfolding and what are the chances?
Could Ethereum ETFs compete with BTC ETFs?
What can we anticipate next?
Ethereum (ETH) has been experiencing a bullish trend, hovering around $3,760 as of May 22, showcasing a 28% surge over the past week.
This surge is fueled by speculation that the U.S. Securities and Exchange Commission (SEC) might greenlight the first spot Ether exchange-traded funds (ETFs) this week.
In a surprising twist, on May 20, the SEC requested Nasdaq, CBOE, and NYSE to tweak their applications for listing spot Ether ETFs. The exchanges were given a deadline to submit their revised applications by Tuesday’s end.
Bloomberg’s analyst, Eric Balchunas, highlighted that various ETF issuers, including Fidelity, VanEck, and ARK/21Shares, swiftly submitted their amended filings.
These filings, known as Form 19b-4, are crucial as they inform the SEC about a proposed rule change and are essential for obtaining the agency’s approval before spot Ethereum ETFs can be launched.
Following this development, Ether’s price surged, leaping up to 18% on Monday to surpass $3,830 before stabilizing around $3,700 at the time of writing.
It is crucial to note that the deadlines for the first round of spot Ether ETFs are approaching, with VanEck’s application deadline set for May 23 and ARK Invest/21Shares’ on May 24.
The approval of these ETFs would be a significant victory for the crypto industry, catching many off guard who were anticipating a rejection.
However, despite these advancements, uncertainties persist. The SEC, under the leadership of crypto skeptic Gary Gensler, has historically been cautious about approving spot crypto ETFs due to concerns regarding market manipulation.
Nonetheless, the recent legal triumph by Grayscale Investments, which compelled the SEC to approve spot Bitcoin ETFs, might influence the decision on Ether ETFs.
In addition to the 19b-4 filing, ETF issuers must also secure S-1 approvals from the SEC. The S-1 form is a registration statement that provides comprehensive details about the ETF, including its investment objectives, strategies, and risks.
The SEC reviews the S-1 filing to ensure the ETF complies with all regulatory standards. The approval process for S-1 filings can vary, taking weeks to months. Once the S-1 approvals are granted, the ETF can be launched and traded on the market.
This implies that it could take weeks to months before we witness S-1 approvals and, consequently, a live Ethereum ETF.
What is happening, and what are the odds?
Speculation suggests that the SEC’s shift in stance could be politically driven, potentially influenced by the upcoming elections.
Former President Donald Trump, who has recently voiced pro-crypto sentiments, criticized President Joe Biden’s grasp of crypto and implied that crypto enthusiasts should support him.
This turn of events has led some to believe that crypto has become a focal point in the campaign, particularly as Democrats aim to attract young voters, a demographic heavily engaged in crypto.
“The Democrats urgently need young people to show up and vote for them. And the primary positioning, if you observe what Biden is doing from a campaign perspective, is to portray himself as a forward-thinking octogenarian,” a source informed The Block.
Moreover, Ji Kim, the Chief Legal and Policy Officer at the Crypto Council for Innovation, emphasized the significance of crypto to constituents and its potential influence on elections, suggesting that crypto voters could be a crucial swing voting bloc.
Meanwhile, the SEC’s prior approval of Ether futures ETFs in October 2023, including those from ProShares, VanEck, and Bitwise, could impact its decision on spot Ether ETFs. While the approval of futures ETFs may hint at a willingness to consider spot ETFs, each application is evaluated on its own merits.
Market analysts and experts are closely monitoring the situation. Bloomberg’s ETF analyst Eric Balchunas raised his odds of spot Ethereum ETF approval from 25% to 75% after hearing rumors of a possible SEC reversal.
Geoff Kendrick, Head of FX Research and Digital Assets Research at Standard Chartered Bank, echoed similar confidence, estimating an 80% to 90% likelihood of approval this week.
In response to these developments, the crypto betting platform Polymarket witnessed a sudden shift in odds. Initially set at a 10% chance of ETF approval by May 31, the odds surged to nearly 75% within hours and currently hover around 69%.
Participants on the platform could see substantial returns if the approval materializes, with close to 60% returns for a “yes” bet and over 165% for a bet against approval.
Could Ethereum ETFs compete with BTC ETFs?
The potential introduction of spot ETH ETFs could significantly impact both BTC ETFs and the broader altcoin market.
Within just four months since their launch, spot BTC ETFs have amassed an impressive $58 billion in assets under management (AUM), with industry giants like Grayscale and BlackRock leading the way. This success raises questions about how ETH ETFs might contend with BTC ETFs.
Balchunas drew a comparison between the scenario of Ether ETFs launching after Bitcoin ETFs to a concert where Sister Hazel performs after Nirvana.
This analogy signifies timing and impact, with Nirvana symbolizing Bitcoin ETFs, which were the first to emerge and set a high standard. Sister Hazel, representing Ether ETFs, appeared later and might struggle to match the initial impact.
Despite this analogy, Balchunas predicts that ETH ETFs could capture between 10-15% of the assets currently held by BTC ETFs. While BTC ETFs may continue to dominate, funds could flow from BTC to ETH, allowing ETH ETFs to carve out a space in the market.
The announcement of Ethereum ETFs has already caused a significant ripple, resulting in a $100 billion movement in the crypto market cap post-announcement, hinting that ETH ETFs could be more than just “small potatoes,” as Balchunas initially suggested.
The launch of ETH ETFs could also have cascading effects across the altcoin market. As investors diversify their portfolios to include ETH ETFs, other altcoins could benefit from capital rotation from BTC to the altcoin market.
However, the extent of this impact hinges on how well ETH ETFs perform and whether they can attract a substantial share of the market currently dominated by BTC ETFs.
Standard Chartered’s analysis implies that once spot ETFs receive approval, they could draw a significant amount of capital. They project that in the first year post-approval, between 2.39 and 9.15 million ETH could be invested, translating to approximately $15 billion to $45 billion in USD.
If these forecasts materialize, it indicates a robust interest in ether ETFs, akin to what has been observed with bitcoin. Nonetheless, uncertainties prevail currently, and nothing is set in stone.
What to expect next?
As speculation mounts regarding the potential approval of a spot ETH ETF in the U.S. on May 23, VanEck’s ETF has been listed by the Depository Trust and Clearing Corporation (DTCC) under the ticker symbol “ETHV.”
The DTCC, a pivotal player in the American financial market infrastructure, offers clearing, settlement, and transaction reporting services. A listing on the DTCC is a critical step preceding final approval from the SEC.
While VanEck’s ETF remains inactive on the DTCC website, indicating it cannot proceed until regulatory approvals are obtained, it is not the first Ether ETF listed by the DTCC. Franklin Templeton’s spot ETH ETF was listed on the platform a month earlier.
Standard Chartered has suggested that if spot Ether ETFs secure approval this week, Ether could keep pace with Bitcoin, with the current 5.4% price ratio potentially holding for the remainder of 2024.
Geoff Kendrick, Head of FX Research and Digital Assets Research at Standard Chartered Bank, remarked, “given that we now see Bitcoin reaching the $150,000 level by end-2024, this would imply a level of $8,000 for Ether.”
However, while spot Ether ETF approval could yield positive outcomes, the crypto market remains volatile and subject to regulatory changes. It is advisable to exercise caution and conduct thorough research before making any investment decisions.